BILL NUMBER: AB 1634	CHAPTERED  07/22/99

	CHAPTER   144
	FILED WITH SECRETARY OF STATE   JULY 22, 1999
	APPROVED BY GOVERNOR   JULY 21, 1999
	PASSED THE ASSEMBLY   JULY 8, 1999
	PASSED THE SENATE   JULY 1, 1999
	AMENDED IN SENATE   MAY 17, 1999

INTRODUCED BY   Committee on Revenue and Taxation (Knox (Chair),
Kaloogian (Vice Chair), Aroner, Briggs, Ducheny, Honda, and Romero)

                        MARCH 3, 1999

   An act to amend Sections 1088, 13021, 13028, and 13050 of, and to
add  Section 13009.5 to, the Unemployment Insurance Code, relating to
taxation.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1634, Committee on Revenue and Taxation.  Taxation:
unemployment insurance benefits:  wages.
   Existing unemployment insurance law requires each employer to file
a report of wages paid to his or her workers and to furnish to each
employee a written statement showing, among other things, the total
amount of wages.
   This bill would require the report and statement to include the
total amount of wages subject to personal income tax, as provided.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 1088 of the Unemployment Insurance Code is
amended to read:
   1088.  (a) (1) Each employer shall file with the director within
the time required by subdivision (a) or (d) of Section 1110 for
payment of employer contributions, a report of contributions and a
report of wages paid to his or her workers in the form and containing
any information as the director prescribes.  An electronic funds
transfer of contributions pursuant to subdivision (f) of Section 1110
shall satisfy the requirement for a report of contributions.  The
report of wages shall include individual amounts required to be
withheld under Section 13020 or withheld under Section 13028.
   (2) (A) In order to enhance efforts to reduce tax fraud and to
reduce the personal income tax reporting burden, effective January 1,
1997, the report of wages shall also include the full first name of
the employee and total wages, as defined in Section 13009, paid to
each employee.  This paragraph shall apply to reports of wages for
all periods ending on or before December 31, 1999.
   (B) For all periods beginning on or after January 1, 2000, the
report of wages shall also include total wages subject to personal
income tax, as defined in Section 13009.5, paid to each employee.
   (b) Each employer shall file with the director within the time
required by subdivision (b) or (d) of Section 1110 for payment of
worker contributions, a report of contributions containing the
employer's business name, address, and account number, the total
amount of worker contributions due, and any other information as the
director shall prescribe.  The director shall prescribe the form for
the report of contributions.  An electronic funds transfer of
contributions pursuant to subdivision (f) of Section 1110 shall
satisfy the requirement for a report of contributions.
   (c) In addition to the report of contributions and report of wages
required by employers under subdivision (a), an individual who has
elected coverage under subdivision (a) of Section 708 is also
required to file a separate report of contributions, subject to Part
2 (commencing with Section 2601).
   (d) Any employer making an election under subdivision (d) of
Section 1110 shall submit the report of wages described in
subdivision (a), within the time required for submitting employer
contributions under subdivision (a) of Section 1110.
   (e) In addition to the report of contributions and report of wages
described in subdivision (a), each employer shall file with the
director an annual reconciliation return showing the total amount of
wages, employer contributions required under Sections 976 and 976.6,
worker contributions required under Section 984, the amounts required
to be withheld under Section 13020 or withheld under Section 13028,
and any other information as the director shall prescribe.  This
annual reconciliation return shall be due on the first day of January
following the close of the prior calendar year and shall become
delinquent if not filed on or before the last day of that month.
   This subdivision shall not apply to individuals electing coverage
under Section 708 or 708.5 or employers electing financing under
Section 821.
   (f) For purposes of making a report of wages under subdivision
(a), employers who are required under Section 6011 of the Internal
Revenue Code and authorized regulations thereunder to file magnetic
media returns, shall, within 90 days of becoming subject to this
requirement, do one of the following:
   (1) Submit a magnetic media format to the department for approval,
and upon receiving approval from the department, submit any
subsequent reports of wages on magnetic media.
   (2) Establish to the satisfaction of the director that there is a
lack of automation, a severe economic hardship, a current exemption
from submitting magnetic media information returns for federal
purposes, or other good cause for not complying with the provisions
of this subdivision.  Approved waivers shall be valid for six months
or longer, at the discretion of the director.
   (g) The Franchise Tax Board shall be allowed access to the
information filed with the department pursuant to this section.
   (h) If an employer demonstrates that an undue hardship would be
imposed, the director may authorize an exemption from the requirement
in subdivision (a) to report individual amounts withheld under
Section 13020 and the requirement in subdivision (e) to file the
annual reconciliation return for the 1995 calendar year only.  Any
request for exemption must be filed on or before January 15, 1995.
Upon approval of a request for exemption under this subdivision, the
employer shall file quarterly returns and reports of wages in the
manner and method prescribed by the director for the 1995 calendar
year only.
  SEC. 2.  Section 13009.5 is added to the Unemployment Insurance
Code, to read:
   13009.5.  (a) For purposes of the report required by subdivision
(a) of Section 1088 and the statement required by Section 13050,
"wages subject to personal income tax" means all of the following:
   (1) Remuneration defined as wages by Section 13009, except that in
the case of tips received by an employee in the course of his or her
employment, the amounts shall include only those tips included in
statements furnished to the employer, pursuant to Section 13055.
   (2) Remuneration described in subdivisions (a), (b), (f), and (l)
of Section 13009, to the extent included in gross income.
   (3) Payments made by a third party for sick pay as specified in
Section 931.5.
   (A) Any employer who receives a report of wages from a third-party
payer as provided for in subdivisions (a) and (b) of Section 931.5
shall report those wages to the department as required under
paragraph (2) of subdivision (a) of Section 1088.
   (B) Any third-party payer described in Section 931.5 who fails to
report wages to an employer as provided for in that section shall
report those wages to the department as required under paragraph (2)
of subdivision (a) of Section 1088.
   (b) (1) A person or entity shall not be required to register with
the Employment Development Department solely for the purpose of
reporting wages subject to personal income tax pursuant to Section
1088 unless that registration is otherwise required by this code.
   (2) A person or entity shall not be required to withhold any tax
under Section 13020 for wages, as defined by this section, unless
that person or entity is required to withhold tax for those wages as
defined by Section 13009.
  SEC. 3.  Section 13021 of the Unemployment Insurance Code is
amended to read:
   13021.  (a) Every employer required to withhold any tax under
Section 13020 shall for each calendar quarter, whether or not wages
or payments are paid in the quarter, file a withholding report and a
report of wages in a form prescribed by the department, and pay over
the taxes so required to be withheld.  The report of wages shall
include individual amounts required to be withheld under Section
13020 or withheld under Section 13028.  Except as provided in
subdivisions (c) and (d) of this section, the employer shall file a
withholding report and remit the total amount of income taxes
withheld during the calendar quarter on or before the last day of the
month following the close of the calendar quarter.
   (b) Every employer electing to file a single annual return under
subdivision (d) of Section 1110 shall report and pay any taxes
withheld under Section 13020 on an annual basis within the time
specified in subdivision (d) of Section 1110.
   (c) (1) Effective January 1, 1995, whenever an employer is
required, for federal income tax purposes, to remit the total amount
of withheld federal income tax in accordance with Section 6302 of the
Internal Revenue Code and regulations thereunder, and the
accumulated amount of state income tax withheld is more than five
hundred dollars ($500), the employer shall remit the total amount of
income tax withheld for state income tax purposes within the number
of banking days as specified for withheld federal income taxes by
Section 6302 of the Internal Revenue Code, and regulations
thereunder.
   (2) Effective January 1, 1996, the five hundred dollar ($500)
amount referred to in paragraph (1) shall be adjusted annually as
follows, based on the annual average rate of interest earned on the
Pooled Money Investment Fund as of June 30 in the prior fiscal year:



Average Rate of Interest
Greater than or equal to 9 percent:                          $ 75
Less than 9 percent, but greater than or equal to
  7 percent:                                                  250
Less than 7 percent, but greater than or equal to
  4 percent:                                                  400
Less than 4 percent:                                          500

   (d) (1) Notwithstanding subdivisions (a) and (c), for calendar
years beginning prior to January 1, 1995, if in the 12-month period
ending June 30 of the prior year the cumulative average payment made
pursuant to this division or Section 1110, for eight-monthly periods,
as defined under Section 6302 of the Internal Revenue Code and
regulations thereunder, was fifty thousand dollars ($50,000) or more,
the employer shall remit the total amount of income tax withheld
within three banking days following the close of each eight-monthly
period, as defined by Section 6302 of the Internal Revenue Code and
regulations thereunder.  For purposes of this subdivision, payment
shall be made by electronic funds transfer in accordance with Section
13021.5, for one calendar year beginning on January 1.  Payment is
deemed complete on the date the electronic funds transfer is
initiated, if settlement to the state's demand account occurs on or
before the banking day following the date the transfer is initiated.
If settlement to the state's demand account does not occur on or
before the banking day following the date the transfer is initiated,
payment is deemed complete on the date settlement occurs.  The
department shall, on or before October 31 of the prior year, notify
all employers required to make payment by electronic funds transfer
of these requirements.
   (2) Notwithstanding subdivisions (a) and (c), for calendar years
beginning on or after January 1, 1995, if in the 12-month period
ending June 30 of the prior year, the cumulative average payment made
pursuant to this division or Section 1110 for any deposit periods,
as defined under Section 6302 of the Internal Revenue Code and
regulations thereunder, was twenty thousand dollars ($20,000) or
more, the employer shall remit the total amount of income tax
withheld within the number of banking days as specified for federal
income taxes by Section 6302 of the Internal Revenue Code and
regulations thereunder.  For purposes of this subdivision, payment
shall be made by electronic funds transfer in accordance with Section
13021.5, for one calendar year beginning on January 1.  Payment is
deemed complete on the date the electronic funds transfer is
initiated, if settlement to the state's demand account occurs on or
before the banking day following the date the transfer is initiated.
If settlement to the state's demand account does not occur on or
before the banking day following the date the transfer is initiated,
payment is deemed complete on the date settlement occurs.  The
department shall, on or before October 31 of the prior year, notify
all employers required by this paragraph to make payments by
electronic funds transfer of these requirements.
   (3) Notwithstanding paragraph (2), effective January 1, 1995,
electronic funds transfer payments that are subject to the one-day
deposit rule, as defined by Section 6302 of the Internal Revenue Code
and regulations thereunder, shall be deemed timely if the payment
settles to the state's demand account within three banking days after
the date the employer meets the threshold for the one-day deposit
rule.
   (4) Any taxpayer required to remit payments pursuant to paragraphs
(1) and (2) may request from the department a waiver of those
requirements.  The department may grant a waiver only if it
determines that the particular amounts paid in excess of fifty
thousand dollars ($50,000) or twenty thousand dollars ($20,000), as
stated in paragraphs (1) and (2), respectively, were the result of an
unprecedented occurrence for that employer, and were not
representative of the employer's cumulative average payment in prior
years.
   (5) Any state agency required to remit payments pursuant to
paragraphs (1) and (2) may request a waiver of those requirements
from the department.  The department may grant a waiver if it
determines that there will not be a negative impact on the interest
earnings of the General Fund.  If there is a negative impact to the
General Fund, the department may grant a waiver if the requesting
state agency follows procedures designated by the department to
mitigate the impact to the General Fund.
   (e) Any employer not required to make payment pursuant to
subdivision (d) of this section may elect to make payment by
electronic funds transfer in accordance with Section 13021.5 under
the following conditions:
   (1) The election shall be made in a form, and shall contain
information, as prescribed by the director, and shall be subject to
approval by the department.
   (2) If approved, the election shall be effective on the date
specified in the notification to the employer of approval.
   (3) The election shall be operative from the date specified in the
notification of approval, and shall continue in effect until
terminated by the employer or the department.
   (4) Funds remitted by electronic funds transfer pursuant to this
subdivision shall be deemed complete in accordance with subdivision
(d) or as deemed appropriate by the director to encourage use of this
payment method.
   (f) Notwithstanding Section 1112, no interest or penalties shall
be assessed against any employer who remits at least 95 percent of
the amount required by subdivision (c) or (d), provided that the
failure to remit the full amount is not willful and any remaining
amount due is paid with the next payment.  The director may allow any
employer to submit the amounts due from multiple locations upon a
showing that those submissions are necessary to comply with the
provisions of subdivision (c) or (d).
   (g) The department may, if it believes that action is necessary,
require any employer to make the report required by this section and
pay to it the tax deducted and withheld at any time, or from time to
time but no less frequently than provided for in subdivision (a).
   (h) Any employer required to withhold any tax and who is not
required to make payment under subdivision (c) shall remit the total
amount of income tax withheld during each month of each calendar
quarter, on or before the 15th day of the subsequent month if the
income tax withheld for any of the three months or, cumulatively for
two or more months, is three hundred fifty dollars ($350) or more.
   (i) For purposes of subdivisions (a), (c), and (h), payment is
deemed complete when it is placed in a properly addressed envelope,
bearing the correct postage, and it is deposited in the United States
mail.
   (j) In addition to the withholding report and report of wages
described in subdivision (a), each employer shall file with the
director an annual reconciliation return showing the amount required
to be withheld under Section 13020, and any other information the
director shall prescribe.  This annual reconciliation return shall be
due on the first day of January following the close of the prior
calendar year and shall become delinquent if not filed on or before
the last day of that month.
   (k) If an employer demonstrates that an undue hardship would be
imposed, the director may authorize an exemption from the requirement
in subdivision (a) to report individual amounts withheld under
Section 13020 and the requirement in subdivision (j) to file the
annual reconciliation return for the 1995 calendar year only.  Any
request for exemption must be filed on or before January 15, 1995.
Upon approval of a request for exemption under this subdivision, the
employer shall file quarterly returns reporting the amount withheld
under Section 13020, the statement required to be furnished under
Section 13050, and the annual return required by Section 13053, for
the 1995 calendar year only.
  SEC. 4.  Section 13028 of the Unemployment Insurance Code is
amended to read:
   13028.  (a) (1) For purposes of this division (and so much of Part
10 (commencing with Section 17001) and Part 10.2 (commencing with
Section 18401) of Division 2 of the Revenue and Taxation Code as
relates to this division) pensions, annuities, and other deferred
income, as described in Section 3405 of the Internal Revenue Code,
are wages and subject to withholding under this division.  Amounts
withheld shall be treated as if the amounts are withheld by an
employer for a payroll period and only amounts withheld shall be
reported to the department pursuant to Section 1088 and Section
13021.
   (2) Notwithstanding paragraph (1), amounts excluded from gross
income by Section 17131.5 of the Revenue and Taxation Code are not
wages and are not subject to withholding under this division.
   (b) If an individual makes an election under Section 3405(a)(2) or
Section 3405(b)(3) of the Internal Revenue Code not to have tax
withheld, that election shall apply to withholding under this
division, unless the individual elects, with the consent of the
payer, to have those payments subject to withholding under this
division.  If an individual has not made an election under Section
3405(a)(2) or Section 3405(b)(3) of the Internal Revenue Code, that
individual may elect to exclude those payments from withholding under
this division.  Elections provided in this subdivision shall be made
pursuant to regulations of the director.
   (c) Where Section 3405 of the Internal Revenue Code provides that
tables or other computational procedures shall be prescribed by the
Secretary of the Treasury, for the purposes of this division, any of
the following amounts may be withheld, upon election of the payer:
   (1) An amount determined by the method prescribed under Section
13020.
   (2) A designated dollar amount as requested by the payee.
   (3) Ten percent of the amount of federal withholding computed
pursuant to Section 3405 of the Internal Revenue Code.
   (d) Where the amount of withholding computed pursuant to
subdivision (c) is less than ten dollars ($10) per month, the payer
shall not be required to withhold that amount.
   (e) This section shall not apply to pensions, annuities, and other
deferred income of payees with addresses outside this state, as
shown on the most current records of the payer.
   (f) The department shall, in consultation with the affected payers
and payees, issue regulations to implement this section.
   Those regulations shall provide for delay (but not beyond July 1,
1987) of the application of this section with respect to any payer or
class of payers until that time as the payers are able to comply
without undue hardship with the requirements of this section.  In
that case, no retroactive compliance shall be required.
  SEC. 5.  Section 13050 of the Unemployment Insurance Code is
amended to read:
   13050.  (a) Every employer or person required to deduct and
withhold from an employee a tax under Section 986, 3260, or 13020, or
who would have been required to deduct and withhold a tax under
Section 13020 (determined without regard to Section 13025) if the
employee had claimed no more than one withholding exemption, shall
furnish to each employee in respect of the remuneration paid by the
person to the employee during the calendar year, on or before January
31 of the succeeding year, or, if his or her employment is
terminated before the close of the calendar year, on the day on which
the last payment of remuneration is made, a written statement
showing all of the following:
   (1) The name of the person.
   (2) The name of the employee, and his or her social security or
identifying number if wages have been paid.
   (3) The total amount of wages subject to personal income tax, as
defined by Section 13009.5.
   (4) The total amount deducted and withheld as tax under Section
13020.
   (5) The total amount of worker contributions paid by the employee
pursuant to Section 986.
   (6) The total amount of worker contributions paid by the employee
pursuant to Section 3260.
   (7) The total amount of elective deferrals (within the meaning of
Section 402(g)(3) of the Internal Revenue Code) and compensation
deferred pursuant to Section 457 of the Internal Revenue Code.
   (b) The statement required to be furnished pursuant to this
section in respect of any remuneration shall be furnished at other
times, shall contain other information, and shall be in a form, as
the department may by authorized regulations prescribe.
   (c) (1) A duplicate of any statement made pursuant to this section
and in accordance with authorized regulations prescribed by the
department shall, when required by the regulations, be filed with the
department.
   (2) Effective January 1, 1995, this subdivision shall apply only
to those employers exempted under subdivision (h) of Section 1088 or
subdivision (k) of Section 13021 from the requirements to report
individual amounts withheld on the report of wages and to file the
annual reconciliation return for the 1995 calendar year only.  This
subdivision shall remain in effect only until March 1, 1996, and on
that date is repealed, unless a later enacted statute that is enacted
before March 1, 1996, deletes or extends that date.
   (d) If, during any calendar year, any person makes a payment of
third-party sick pay to an employee, that person shall, on or before
January 15 of the succeeding year, furnish a written statement to the
employer in respect of whom the payment was made showing all of the
following:
   (1) The name and, if there is withholding under this division, the
social security number of that employee.
   (2) The total amount of the third-party sick pay paid to that
employee during the calendar year.
   (3) The total amount, if any, deducted and withheld from that sick
pay under this division.  For purposes of the preceding sentence,
the term "third-party sick pay" means any sick pay, as defined in
subdivision (b) of Section 13028.6, which does not constitute wages
for purposes of this division, determined without regard to
subdivision (a) of Section 13028.6.
   (A) The reporting requirements of subdivision (a) with respect to
any payments shall, with respect to those payments, be in lieu of the
requirements of subdivision (a) and of Section 18637 of the Revenue
and Taxation Code.
   (B) For purposes of Chapter 10 (commencing with Section 2101) of
Part 1 of Division 1, the statements required to be furnished by this
subdivision shall be treated as statements required under this
section to be furnished to employees.
   (C) Every employer who receives a statement under this subdivision
with respect to sick pay paid to any employee during any calendar
year shall, on or before January 31 of the succeeding year, furnish a
written statement to that employee showing all of the following:
   (i) The information shown on the statement furnished under this
subdivision.
   (ii) If any portion of the sick pay is excludable from gross
income pursuant to Article 3 (commencing with Section 17131) of
Chapter 3 of Part 10 of Division 2 of the Revenue and Taxation Code,
the portion that is not so excludable and the portion that is so
excludable.  To the extent practicable, the information required
under the preceding sentence shall be furnished on or with the
statement, if any, required under subdivision (a).
   (e) The Franchise Tax Board shall be allowed access to the
information filed with the department pursuant to this section.
